Rattler Midstream LP

RTLR Details

Rattler Midstream LP (NASDAQ: RTLR) is a partnership firm that owns, operates, develops, and acquires midstream infrastructure assets in the Midland and Delaware sub-basins of the Permian basin, one of the most abundant oil-producing areas across the world. Under fixed-rate trade arrangements, RTLR provides Diamondback Energy, Inc., its parent company, with crude oil, natural gas, and water-related midstream services (including water supply, shipping, and produced water collection and disposal).

Strategic Divestitures: RTLR signed an agreement on April 22, 2021, to sell one of its real estate holdings in Midland, Texas, for approximately USD 10 million, subject to certain closing amendments. The transaction was expected to be completed in Q2FY21.

In addition, on April 30, 2021, RTLR and Amarillo Midstream, LLC sold their respective interests in Amarillo Rattler, a 50:50 joint venture that owns and operates the Yellow Rose gas gathering and processing system. RTLR received USD 23.5 million as consideration, net of transaction expenses and closing adjustments, with an incremental USD 5 million due in April 2022, and could receive up to USD 7.5 million as contingent payments from 2023 to 2025.

Q1FY21 Results: RTLR reported a 23.64% decline in total revenues to USD 98.81 million in Q1FY21 (ended March 31, 2021) compared to USD 129.40 million in Q1FY20, due to a decline in sourced and produced water volumes because of Diamondback Energy’s lower level of drilling and completion activity during Q1FY21. In addition, net income fell by 52.54% YoY to USD 25.91 million in Q1FY21 vs USD 54.59 million in Q1FY20. RTLR witnessed a decline in adjusted EBITDA to USD 65.31 million in Q1FY21 compared to USD 80.98 million in Q1FY20.

Key Risks: RTLR’s midstream assets are located in the Permian Basin in Texas. As a result, it is exposed to several implications such as the impact of supply and demand factors, delays in production from wells due to government regulations, water shortages, weather-related conditions, for example, recent ghastly winter storms in the Permian Basin, or freight delays. These factors could negatively impact the company’s operations as well as financial situation. Further, RTLR’s commercial agreements with Diamondback, which have no minimum volume commitments, provide for most of its revenue. Diamondback's drilling and development plans are likely to continue to have a direct impact on demand for the company’s midstream services and its operating results.

Outlook:  

FY21 Guidance (Source: Q1FY21 Press Release, May 04, 2021)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

RTLR Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: RTLR stock price fell by 8.28% in the past one month and is currently leaning towards the higher end of the 52-week range of USD 5.53 to USD 11.98. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 45.11. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 12.66. On the technical chart, the next support level is USD 9.31. Considering the company’s growth prospects, robust dividend yield, solid EBITDA margins, strong backing from Diamondback Energy, and associated risks, we recommend a “Speculative Buy” rating on the stock at the current price of USD 10.75, down 0.83% as of July 13, 2021, at 11:53 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

Teekay Tankers Ltd.

TNK Details

Teekay Tankers Ltd. (NYSE: TNK) is a global provider of marine transportation services and an operator of medium-sized oil tankers. TNK is involved in the transportation of crude oil and refined petroleum products to global petroleum companies. As of March 31, 2021, its fleet size consists of 55 vessels, including four in-chartered vessels and one 50%-owned Very Large Crude Carrier (VLCC). Following the sale of the non-US portion of ship-to-ship support and LNG terminal management services on April 30, 2020, TNK operates in only one segment, the Tanker Segment, which consists of operations of all tankers and the US-based ship-to-ship support service processes.

Fleet Overview (Source: Quarterly Report, Q1FY21)

Acquiring New Vessels: In March 2021, as part of a repurchase agreement, the company acquired six Aframax tankers for a combined cost of USD 128.80 million. These vessels will be delivered in September 2021. In addition, TNK acquired two Suezmax tankers in May 2021, for a total cost of USD 56.70 million.

Q1FY21 Results: The company reported a 58.24% decline in total revenues to USD 142.75 million in Q1FY21 (ended March 31, 2021) compared to USD 341.90 million in Q1FY20, primarily due to a decline in voyage charter revenues. TNK reported a loss of USD 21.36 million in Q1FY21 compared to a profit of USD 106.84 million in Q1FY20. As of March 31, 2021, the company had cash and cash equivalents of USD 87.59 million with a total debt of USD 599.74 million.

Key Risks: The marine transportation industry is quite volatile. The companies in this industry have witnessed frequent fluctuations in profitability due to rapid changes in the economics of tanker capacity and oil products. As a result, the turnover and profitability of the company could increase or decrease significantly. In the current situation, the volatility in oil demand and supply resulting from recurring lockdowns across the globe due to the COVID-19 pandemic and the recent deadlock over oil production among OPEC+ members could adversely affect the company’s financials and operations.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

TNK Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: TNK stock price fell by 15.95% in the past one month and is currently close to the mid-band of the 52-week range of USD 8.90 to USD 16.30. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 37.60. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 15.78. On the technical chart, the next support level is USD 10.90. Considering the company’s growth prospects, fleet size and capacity, strong balance sheet, current valuation, and associated risks, we recommend a “Speculative Buy” rating on the stock at the current price of USD 13.07, down by 3.54% as of July 13, 2021, at 01:27 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.